Joint Venture Nippon Steel & Sumitomo Metal Corporation (NSSMC) and Krakatau Steel

The joint venture between NSSMC and Krakatau Steel will see the birth of a new legal entity (joint venture) ‘Krakatau Nippon Steel Sumikin’ in which NSSMC holds a controlling 80 percent stake. This joint venture will construct a factory that produces automotive flat steel and which requires investments worth about USD $300 million. Apart from this amount, NSSMC will inject a further USD $113 million into the joint venture. The steel factory will be built in Cilegon (Banten, Java) and is expected to provide employment opportunities to 280 workers. The core business of this factory will involve production of annealed cold-rolled steel and hot-dip galvanized steel to supply Indonesia's automotive sector. Production capacity of the factory is designed for 480 thousand tons per year. The start of production is targeted in 2017.

Executive Director of the Indonesian Iron and Steel Industry Association (IISIA) Hidayat Triseputro said that Japanese steel producers are interested to expand to Indonesia - Southeast Asia’s largest economy - as Indonesian steel demand (by far) outpaces the country’s steel production. Triseputro said that the Indonesian market demands about 12 million tons of steel per year, whereas current domestic production capacity is only seven million tons per year. The deficit thus needs to be imported from abroad. Without enhancing the nation’s production capacity, steel imports will increase. Most of the imported steel is used in the automotive industry. As car sales have been rising considerably in recent years (see table below), so has steel demand. As such, the joint venture between NSSMC and Krakatau Steel is specifically based on both sides' expectation that Indonesia’s car industry will expand further. Considering that per capita car ownership is still relatively low in Indonesia while per capita GDP is growing, it is indeed a worthwile investment. 

Indonesian Car Sales (CBU):

 Month    Sold Cars 2012    Sold Cars 2013    Sold Cars 2014
 January           76,427           96,718          103,595
 February           86,486          103,279          111,880
 March           87,917           95,996          113,096
 April           87,144          102,257          106,056
 May           95,541           99,697           97,136
 June          101,746          104,268          110,548
 July          102,511          112,178          ±91,000
 August           76,445           77,964  
 September          102,100          115,973  
 October          106,754          112,039  
 November          103,703          111,841  
 December           89,456           97,694  
 Total         1,116,230


     2008    2009    2010    2011     2012     2013     2014¹
Indonesian Car Sales
(number of car units)
 607,805  486,061  764,710  894,164 1,116,230
1,229,904 1,280,000
Indonesian Exports
(number of car units)
 100,982   56,669   85,769  107,932  173,368  170,907  200,000

¹ future forecast
Source: Gaikindo

Mitsubishi Steel Manufacturing Stake in Jatim Steel Manufacturing

The acquisition of a 34 percent stake in Jatim Steel Manufacturing by Mitsubishi Steel Manufacturing is expected to lead to increased production capacity. Currently, Jatim Steel has a steel production capacity of 120 thousand tons per year. This will rise to an annual 170 thousand tons by 2020 (of which 100 thousand tons involves flat steel). Business relations between both companies are not new. Since 2010, Mitsubishi Steel has been providing technical support to Jatim Steel. Besides supplying the Indonesian market, Mitsubishi Steel also intends to use steel produced by Jatim Steel to supply other ASEAN countries.